That is dedicated to people who wish to purchase individual stocks. I wants to share with you the methods Personally i have tried through the years to select stocks i are finding to get consistently profitable in actual trading. I love to use a mix of fundamental and technical analysis for choosing stocks. My experience indicates that successful stock selection involves two steps:
1. Select a standard while using the fundamental analysis presented then
2. Confirm how the stock is surely an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being above the 100-Day EMA
This two-step process enhances the odds how the stock you decide on will likely be profitable. It offers a transmission to market stock which has not performed as you expected if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful means for selecting stocks for covered call writing, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis could be the study of economic data including earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over the years Personally i have tried many methods for measuring a company’s growth rate in an attempt to predict its stock’s future price performance. I have used methods including earnings growth and return on equity. I are finding the methods are not always reliable or predictive.
Earning Growth
For instance, corporate net earnings are at the mercy of vague bookkeeping practices including depreciation, cashflow, inventory adjustment and reserves. These are common at the mercy of interpretation by accountants. Today more than ever before, corporations they are under increasing pressure to overpower analyst’s earnings estimates which leads to more aggressive accounting interpretations. Some corporations take special “one time” write-offs on the balance sheet for specific things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs are not reflected like a continue earnings growth but show up like a footnote on a financial report. These “one time” write-offs occur with increased frequency than you might expect. Many companies which form the Dow Jones Industrial Average have got such write-offs.
Return on Equity
One other popular indicator, which I have found is just not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a high return on equity with successful corporate management that is maximizing shareholder value (the greater the ROE the higher).
Recognise the business is a bit more successful?
Coca-Cola (KO) having a Return on Equity of 46% or
Merrill Lynch (MER) having a Return on Equity of 18%
The answer is Merrill Lynch by any measure. But Coca-Cola includes a greater ROE. How are these claims possible?
Return on equity is calculated by dividing a company’s net profit by stockholder’s equity. Coca-Cola is really over valued that it is stockholder’s equity is merely equal to about 5% from the total market price from the company. The stockholder equity is really small that just about any amount of net profit will create a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity equal to 42% from the market price from the company and requires a greater net profit figure to produce a comparable ROE. My point is always that ROE does not compare apples to apples then isn’t a good relative indicator in comparing company performance.
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